Which inventory method is better described as having a balance sheet focus and why is it considered as such?

Question

Quizplus · Accepted Answer

FIFO (first-in, first-out) is better described as having a balance sheet focus because it assumes that the first inventory purchased is also the first inventory sold. This better approximates the value of ending inventory on the balance sheet, as it assumes that the most recent inventory purchases are still held in inventory. This method is also better for businesses with low inventory turnover or for businesses that want to show a higher net income on their income statement by keeping costs of goods sold lower.

Which Inventory Method Is Better Described as Having a Balance